New Zealanders need to embrace the idea of “creative destruction” as the economy enters the most difficult phase of the pandemic, says BNZ chief economist Paul Conway.
Conway, who spent seven years with the Productivity Commission, was appointed BNZ chief economist earlier this year.
New Zealand had done a good job and of managing the first phase of the pandemic and that had enabled the economy to perform better than many expected, he told ‘The Economy Hub’.
But the coming year would be tough as the country got into “the grit of the structural change”, he said.
“Businesses are going to the wall, people are losing their jobs, we’re really in the throes of that difficult period.”
“As economists, we think fo this as creative destruction and we’re very much in the destruction phase at the moment.”
In terms of the economic cycle there was some truth to the idea that things were darkest before the dawn, he said.
Much of the worst economic pain was being felt even as vaccines were rolling out and the end of the pandemic coming into sight.
“Even once we get the vaccine its not like things are just going to go back to normal,” Conway said.
“There’s no going back to the old economy.”
Some industries, like tourism, would be irreversibly changed by the pandemic.
“I think people are going to be reluctant to get on a plane for 26 hours to come on down,” Conway said.
But the structural social change was also hitting high street retailers and other sectors, he said.
“As unfortunate as it sounds, part of it is just going to be those industries getting smaller as a share of our economy.”
That wasn’t something the Government could or should necessarily do anything about, he said.
“The wage subsidy was really important and really good … and monetary policy support. I think Government has done a great job,” he said.
But from here policy should be “less about subsidising or supporting businesses. The fact is were going to see a lot of change and we don’t want to be slowing down that process.”
Government policy should focus on supporting the people caught up in that by helping them transition rather than propping up jobs, he said
We should continue to support businesses that had a bright future and were just struggling with the economic cycle.
“But other businesses where their world has fundamentally changed and their business model is no longer appropriate – as tough as that sounds – we do have to let the process work its way through.”
The process of resources sifting from sunset industries into sunrise industries was already under way, he said.
“There is a lot of excitement there. I actually am quite optimistic about New Zealand’s economic future.”
“Covid-19, as terrible as its been, and as awful as that process of going through creative destruction is, I think if we’re smart we can use it as a pivot to a better performing New Zealand economy.”
“The challenge for us now is how do we build a New Zealand economy pivoting off what Covid has thrust on us – that delivers more well-being for more New Zealanders.”
But Conway believes we can emerge from the pandemic as a more efficient productive economy.
“I think we’ve got a fair idea of how we go about that.”
After seven years at the Productivity Commission, Conway talks with some depth of knowledge about the challenge facing the economy.
“At the Productivity Commission I put together a lot of analysis on why New Zealand has struggled with productivity … focused on ministers and structural,” he says.
He has high hopes for the tech sector and the development of our digital economy.
“It pushes back against the forces that have kept New Zealand a low productivity economy,” he says.
“Productivity has been low because of our economic geography.The fact that we’re very small and a long way from other parts fo the world has really shaped our economy.
“But in the digital space that all changes geography becomes less relevant. We can use our geographic position to our advantage.”
I actually am quite optimistic about New Zealand’s economic future.
There’s plenty that we can be doing to improve the performance.
But it’s about being comfortable with that change. We’ve got to remember the people underneath all the economic statistics. There are people doing it tough and that’s going to go on for some time.
And changing jobs or changing industry can be hard on people.
The good news is we have plenty of resources in terms of Govt support that we can look out for each other on the away.
Through and keeping in mind the light at end of the tunnel. We’re going to have a better economy out of this.
That creative bit in creative destruction.
We need to be a bit brave and optimistic about what’s coming next even though we’re in the throes of the hard gritty period.
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